Paysafe Stock Up 8% Today – Time to Buy PSFE Stock?

The price of Paysafe stock is up 8% today in pre-market stock trading action following news that its leadership team bought some of the company’s common shares following the steep decline that the price has suffered since it went public via SPAC.

According to a press release published this morning, Paysafe’s Chief Executive Officer, Philip McHugh, bought 290,000 shares for around $1 million while other executives bought a total of 447,000 shares for a combined total of $2.8 million in insider buys.

Even though the combined total of these purchases is very small in the context of the firm’s total market capitalization, the fact that insiders are buying is typically considered bullish by market participants as it points to the possibility that the stock could be undervalued at its current levels.

On 11 November this year, Paysafe stock declined as much as 42% in a single day following the release of the firm’s financial results covering the third quarter of 2021.

Back then, the company reported worst-than-expected net losses of $147.2 million compared to $38.1 million it brought during the same period in 2020 while its revenues missed analysts’ estimates by nearly 5%. Moreover, the management shared weaker than expected guidance for both the fourth quarter of 2021 and for the full 2021 fiscal year.

Can today’s pad in the back from the management mark a mid-term bottom for Paysafe stock or is this pre-market uptick poised to be a short-lived rebound? In this article, I’ll attempt to answer that question by assessing the price action and fundamentals of this UK-based digital payments company.

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Paysafe Stock – Technical Analysis

Paysafe stock has been embarked on a sharp downtrend since it hit a peak of $19.5 per share back in January this year nearly three months after the company went public in the New York Stock Exchange (NYSE).

However, it is important to remember that this peak was not actually related to the business’s performance as Paysafe as a company started to trade as such on 1 April following a business combination with Bill Foley’s blank-check company – Trasimene Acquisition Corp II.

Despite this technicality, the price continued to be on a downtrend after the IPO via SPAC transaction was completed and has posted a series of lower lows since then.

The 42% single-day decline that the stock experienced following the release of its latest quarterly report was worst than any other post-earnings decline seen by PSFE stock but was in line with the firm’s track record of negative earnings surprises since it started reporting.

Today’s bounce is particularly interesting as the price just tagged the lower bound of the downward price channel shown in the chart at the same time that the MACD is crossing above the signal line – a move that is typically considered a buy signal.

Meanwhile, the Relative Strength Index (RSI) is about to move out of oversold territory while the MACD’s histogram readings have just turned positive for the first time in weeks.

Even though today’s uptick is not necessarily indicating a full-blown trend reversal, Paysafe stock could at least jump above its 20-day simple moving average to fully or partially close the ugly price gap left behind after the Q3 2021 earnings report came out.

The odds of that happening are unclear but this move is definitely one to watch considering that the stock has been pummeled to the point that the market may have gone too far already

Paysafe Stock – Fundamental Analysis

Paysafe’s growth seems to be stalling as indicated by the management’s revenue forecast for this 2021 fiscal year. If the company finishes the year with revenues of around $1.48 billion, that would result in a meager 3.5% jump in its top-line results compared to 2020.

Meanwhile, the firm’s operating margins have been suffering lately, moving from 14.2% in 2018 to 10.5% by the end of 2020. As a result, net margins have worsened and that is the reason why Paysafe stock has been progressively dropping since it started trading.

During the first nine months of 2021, net losses landed at $201.25 million compared to $123.32 million reported by the firm during the first nine months of 2020 resulting in negative net margins of 18%. This reflects a significant deterioration of more than 600 basis points in the firm’s bottom-line profitability.

Based on the firm’s forecasted revenue and EBITDA figures for the full 2021 fiscal year, Paysafe’s P/S ratio stands at 1.8x while its EV/EBITDA ratio is standing at 11. Moreover, the firm is trading at just 8.5 times its forecasted free cash flows for this year.

Overall, the valuation of this digital payments processing company makes it a potential acquisition target by firms that may benefit from integrating and bringing in its gross payment volumes to their respective platforms.

With this in mind, the mid-term outlook for Paysafe could be positive and the management’s move to acquire some shares at this depressed price reflects that possibility.

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